Carbon credits were the big theme of day four in Sharm El Sheikh, with:

• Egypt kicking off Africa’s first voluntary carbon market
• US climate envoy John Kerry unveiling a new carbon offset plan
• S&P Global saying it will offer carbon intensity estimates for transport fuels as of next week.

A handful of (smaller) climate finance pledges also made news at COP27. Here’s the rundown:

#1- EGX unveils Africa-wide regional voluntary carbon market: Egypt’s stock exchange, the EGX, yesterday said (pdf) it would set up a regional voluntary carbon market (VCM) — the first in Africa. The VCM, which the EGX set up in cooperation with the private sector, will allow companies across the continent to sell certified carbon credits from emission-reducing projects. The credits can be bought by other companies wanting to offset their emissions. EnterpriseAM noted back in May that a local carbon trading scheme was in the works.

SOUND SMART- there are two primary types of carbon market: Compliance (which are created as part of a policy or regulatory requirement) and voluntary (where carbon credits are issued, bought, and sold on a voluntary basis).

The structure and regs are still pending: The EGX and Financial Regulatory Authority are still working on the framework, business model, and structure of the VCM. Among the key issues will be governance of certificate creation and registration. Look for announcement later from Egypt’s prime minister, the statement says, without specifying a timeline.

What we still don’t know: The statement didn’t tell us whether participation in the VCM would be limited to specific industries and — if so — how eligibility would be determined. Also TBD is guidance on the pricing, size or time for first issuances and how the EGX sees marketing to buyers (local, regional or global) unfolding. The EGX was unable to reply to requests for comment by dispatch time.

We do know that newly-established Libra Carbon will supply the carbon offsets to the VCM: A subsidiary of the EGX recently signed an agreement with the Agricultural Bank of Egypt and Enara Group’s Libra Capital to establish the Egyptian company Libra Carbon, we reported earlier this week. Libra Carbon “will supply high-quality carbon offsets to the VCM,” head of project development Omar El Nemr tells Enterprise Climate.

…And help to increase the volume of carbon offsets that are eligible for trading: As of now, the supply of carbon offsets being issued in the Egyptian market is relatively low, says El Nemr. “As Libra Carbon, we’ll work towards providing sufficient volume in the new VCM to kickstart trading operations.” Among Libra Carbon’s roles is to work with emissions-reduction projects to assess to what degree they are eligible to be issued carbon offsets by international accreditation bodies — like Gold Standard, Verra or the Global Carbon Council. The company does project assessments and is a link to auditing and accrediting bodies, helping to create a pipeline of carbon offsets that companies will then be able to trade on the national carbon exchange, El Nemr says.

Voluntary carbon markets are gathering steam across the region: Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF) last month set up a regional voluntary carbon market company, which auctioned 1.4 mn tons of carbon credits at Davos in the Desert. Singapore is also said to be eyeing the purchase of carbon credits from Morocco, we noted.

And Egypt’s broad emissions reduction market — which includes carbon trading — is expected to “grow considerably,” says El Nemr.

#2- Kerry announces new carbon offset plan to increase investment in emerging markets renewables projects: US climate envoy John Kerry yesterday announced a new carbon offset plan — known as the Energy Transition Accelerator (ETA) — to allow companies to claim carbon credits by investing in renewables projects in global growth markets, according to a statement. The framework of the plan will be further developed in the coming year, with government, company stakeholder and standard-setting organization involvement, Kerry said. Reuters is among the news outlets picking up the story.

Kerry says the plan will help unlock fresh capital for clean energy: “By ensuring a predictable finance stream for energy transition, this approach will increase the bankability of clean energy projects, and it will unlock more concessionary, up-front capital,” Kerry said. Bloomberg and Reuters have more, including the now-standard criticism that voluntary carbon markets don’t guarantee a reduction in emissions.

So what do we know about the plan so far? Eligible projects would involve those aimed at building resilience against the impact of climate change (like infrastructure to limit coastal erosion) or decarbonizing economies, Bloomberg notes. Credits would be tied to government decarbonization plans — meaning countries still investing in coal can’t apply — and companies working in oil, gas and coal won’t be able to participate either. “Credits could only be used to supplement — not substitute for — deep reductions of companies' own emissions,” Bloomberg tells us.

What’s the critique? Kerry promised safeguards to help avoid the mistakes of the UN’s widely-criticized clean development mechanism — where some countries’ baseline emissions models were inaccurately calculated. Voluntary carbon markets also came in for a bashing from global securities regulators yesterday for their “potential vulnerabilities,” and a warning that they should be more closely monitored by regulators, the International Organization of Securities Commissions (IOSCO) noted in a statement (pdf) yesterday, Reuters reports.

Who’s on board? The Bezos Earth Fund and Rockefeller Foundation will develop the program with the US government, “with input from the public and private sectors which would operate through 2030 and possibly be extended to 2035,” Reuters notes. Chile and Nigeria are among the countries to have expressed interest in the ETA, while Microsoft, PepsiCo, Standard Chartered and Bank of America are eyeing involvement, the newswire adds.

#3- WATCH THIS SPACE- S&P Global Commodity Insights will launch the first carbon intensity estimates and daily offset premiums for transport fuels next week, the company said in a statement. S&P will launch carbon intensity estimates for diesel, gasoline and jet fuel in Northwest Europe, the US Gulf Coast and Singapore, with daily carbon offset price premiums.

What is carbon intensity? Carbon intensity is a metric in low carbon commodity pricing. It refers to the number of grams of CO2 needed to make one unit of electricity per KW per hour. Higher carbon intensity means higher greenhouse gas (GHG) emissions.

Why price carbon intensity? Carbon intensity estimates for refined products are meant to provide a more accurate estimate of how much carbon these fuels emit, and by extension, reflect the cost of offsetting them. It is expected that price premiums will soon factor in the carbon intensity attribute, according to the company.

CLIMATE FINANCE-

What’s finance got to do with climate action? Everything. The role of financial institutions in driving emissions reduction and helping the world limit global temperature increases to 1.5°C from pre-industrial levels was the driving theme of yesterday’s Finance Day. Former Bank of England Governor Mark Carney and Egypt climate czar Mahmoud Mohieldin were among the bold-face names calling for government and private sector collaboration to unlock the funding that underpins climate action.

The role of governments is key, said Carney: Governments must create frameworks that will boost commitment to emissions reduction by financial markets and “align financial regulation with net-zero” by making transition plans mandatory, Carney said in a panel session yesterday.

While commitment is needed “across the entire financial system,” Mohieldin argues: “Every company, bank, [ins. provider] and investor will have to adjust their business models, develop credible plans for the transition and implement them,” the UN Climate Champion wrote in a LinkedIn op-ed published yesterday.

There’s been progress: Mohieldin hailed “growing ambition and action” from non-state actors, noting that “the world’s largest asset owners and managers” — who collectively control over USD 37 tn — have joined the UN’s Race to Zero campaign, which tracks and verifies pledges and transition plans from the corporate and financial sectors, among other activities. At the start of 2021, “not a single bank had set a science-based 2030 target,” Mohieldin notes. Now, over 500 members of the Glasgow Financial Alliance for Net Zero (GFANZ) — which Carney launched in April 2021 and now co-chairs — “are committed to transitioning the global economy to net-zero greenhouse gas emissions,” Mohieldin adds.

But funds must go where they’re needed most: “Additional finance needs to flow into those countries least responsible for but suffering the most from climate change,” Mohieldin argues, echoing previous conversations he’s had with Enterprise Climate (here and here). Developed economies have provided USD 80 bn of the USD 100 bn they pledged in annual climate finance to developing nations — and Africa saw less than USD 20 bn of this between 2016 and 2019, he noted. In the run-up to COP27, five UN regional finance forums identified a shortlist of fifty projects, ready for investment and being showcased at the summit, he said.

And for financial institutions, abandoning fossil fuels isn’t as easy as all that: Amid the current energy crisis and uneven economic headwinds, banks and investors are struggling to leave fossil fuels behind, Bloomberg notes. “There’s also a legal risk involved in making climate promises that firms don’t live up to,” it adds.

While GFANZ itself may be caught in the middle of conflicting priorities: Although Race to Zero was initially supposed to vet GFANZ members and help direct the decarbonization of their portfolios — to help avert corporate greenwashing — the UN-backed organization was “relegated…to the status of one adviser among many at the end of last month,” the Financial Times notes. This “reflects the difficulties Carney’s team has had keeping this self-governing club of financiers together,” amid banks unwilling to divest from fossil fuels and critics arguing the financial sector’s first priority should be its shareholders, the salmon-colored paper adds.

ALSO FROM THE CLIMATE FINANCE FRONT-

Half of the World Bank’s USD 32 bn climate financing will be allocated to climate adaptation, president David Malpass said yesterday according to Reuters.

At least USD 24 bn in climate finance is coming from the Arab Coordination Group: The Arab Coordination Group — a “strategic alliance that provides a coordinated response to development finance” and consists of regional development funds and the OPEC Fund for International Development — pledged to provide at least USD 24 bn in climate finance by 2030, in a statement issued yesterday, Reuters reports.

EBRD, EIB, UfM kick off Blue Mediterranean Partnership to help bridge EUR 6 bn investment gap: The European Bank for Reconstruction and Development (EBRD), the Union for the Mediterranean (UfM) and the European Investment Bank (EIB) launched a new partnership for a sustainable ‘blue economy’ in the Mediterranean basin, the EBRD announced on Tuesday at COP27. The new partnership will be supported by a financial mechanism to expedite clean investments in the region through capex spending and technical assistance grants.

The Netherlands will contribute EUR 1.8 bn by 2025 to emerging countries and over EUR 100 mn to the Africa Adaptation Acceleration Program developed jointly by the African Development Bank and the Global Center on Adaptation, according to a statement. The pledge to emerging economies is a 50% increase from 2021 contributions.

UK Export Finance will provide sovereign loans with Climate Resilient Debt Clauses for climate-vulnerable nations, according to a statement. The clauses the export credit agency will introduce into its loan agreements will allow low-income countries and small island developing states the chance to defer debt repayments in the event of severe climate shocks or natural disasters.

South Africa landed concessional policy loans worth USD 300 mn from France and Germany for Just Energy Transition (JET) Plan, according to the European Commission. France and Germany’s loans are “a first step towards the fulfillment of our USD 1 bn commitment” each, French President Emmanuel Macron said. Last year, a handful of wealthy countries pledged USD 8.5 bn in the form of grants, loans, investments, and “risk-sharing instruments” to help South Africa decarbonize its economy.

PLUS-

• China is willing to participate in loss and damage compensation to climate vulnerable countries, Reuters reports.
• The Coalition for Disaster Resilient Infrastructure launched a USD 50 mn multi-partner Infrastructure Resilience Accelerator Fund to provide technical assistance and capacity building for emerging economies, according to a statement.